Wichita office, retail vacancy rates see pockets of promise

Those terms might be the best way to characterize the current market for office and retail space in the Wichita area, local real estate officials said.

Following a deep recession that began more than five years ago and resulted in thousands of Wichitans losing their jobs, local brokers and developers expected the commercial real estate market to suffer at a comparable level.

But it didn’t.

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“We’ve actually done better weathering the storm than I thought we would,” said Rod Stewart, a commercial Realtor for more than 40 years and managing director of KW Commercial.

Yet the return to a robust, growing economy that generally followed past recessions hasn’t materialized. Some would say the recovery has been sluggish, at best, with the labor force at a level still well below what it was before the recession began in 2007.

Data from Reis Inc., a New York-based commercial real estate analysis firm, shows marginal improvement in area office vacancies and hardly any change in retail vacancies since the recession officially ended in 2009.

In the third quarter of 2013, the Wichita office vacancy rate was 17.7 percent, slightly higher than the same period a year ago but down from 19.7 percent in the third quarter of 2009, Reis said.

The retail vacancy rate was 13 percent, nearly flat compared with the 13.3 percent rate in the same period a year ago and the 12.7 percent rate in the third quarter of 2009, Reis said.

‘More activity, more interest’

Jerry Gray, vice president and general manager of J.P. Weigand & Sons commercial and investment division, said there are pockets of growth in retail in northeast and northwest Wichita, and vacancies are low.

Gray said the Bradley Fair retail center at 21st and Rock and the area at 21st and Greenwich have been particularly strong for new retail development and high occupancy rates. So has northwest Wichita, he added.

“That’s all very positive and you don’t see many vacancies,” he said. “If you get too far away from those areas, there’s problems.”

Jerry Jones, vice president at Slawson Cos., said retail vacancies haven’t been an issue at his company’s biggest retail centers, NewMarket Square at 21st and Maize in northwest Wichita and the Shops at Tallgrass and Tallgrass Center at 21st and Rock in northeast Wichita.

“I would say vacancies are down in all our properties,” Jones said.

Jones said he thinks his firm’s properties have benefited partly from a lack of new retail center construction in the Wichita area since 2008. A few existing retailers have expanded at Slawson’s centers, including Verizon Wireless and Starbucks in NewMarket Square and Nelson Designs at the Shops at Tallgrass.

“It’s favorable to the retail climate that they would have the confidence to make those expansions,” he said. “We actually have other tenants wanting to expand if space comes available. I think that’s all favorable.”

Jones said that Slawson is progressing on plans for the next phase of development at NewMarket, which will mostly be retail but also includes some restaurant and office space.

Jones said Slawson is “still working on getting all our leases together” for the next phase, which will be built on 12 acres north of the Super Target at 2727 N. Maize.

“I would have to say the process is taking longer than I expected it would,” he said. “It kind of goes back to this theme that there is more activity, more interest.”

But, Jones added, retailers and restaurants “are pretty deliberate about every step of the process” on new leases.

‘Stagnation’

While the data shows that office vacancies are slightly lower than five years ago, brokers such as KW’s Stewart and Patrick Ahern of NAI Martens said activity in the office market is largely limited to existing office users moving from one building to another when their leases expire.

“It’s a difficult environment,” Stewart said. “It’s good for the people that get new tenants. It’s bad for the people that lose tenants.”

Ahern said a lack of job creation during the economic recovery and lingering uncertainty about the U.S. debt situation and the effects of the Affordable Care Act on employers is “holding back the office market.”

“When you don’t have business expanding you have the stagnation I’m talking about,” he said.

Ahern said the movement of office tenants from one building to another “is just the nature of the business that’s pretty common.”

He said some office tenants whose leases are expiring are shopping around for better deals because they can get them right now. Not only can they get better lease rates, in some cases they can get landlords to finish or update the space at no cost to the tenant.

“Some owners are willing to break even on a new tenant moving in, hoping when the lease expires in five years (the owner) will be able to renew them,” Ahern said.

Ahern and Larry Weber said a more recent trend they’ve noticed is office users negotiating shorter terms on leases.

“There’s less surety in the future and companies are wanting to make sure their future is hedged,” said Weber, vice president of Builders Inc. and manager of its Garvey Center office complex downtown.

Weber added that he’s seen “very strong demand” for office space at the Garvey Center.

Ahern said he recently has seen instances in which companies are leasing new space or more space to bring some of their employees who have been working from home back into the traditional office environment. “They want more collaboration (between their workers) and, at minimum, have a workspace where they can share ideas,” he said. “Hopefully that will help (commercial office demand).”

While pockets of activity are helpful to improving office and retail vacancies, what is really needed to improve demand is still elusive. And no one is venturing a guess as to when employment growth will gain traction locally.

“It comes down to job growth,” said Weigand’s Gray. “If there were job growth, we’d be seeing better activity. But I think we’re doing quite well considering the sluggishness of the local economy.”